Detailed Answer
Answer (D) is correct. A conservative working capital policy results in an increase in working capital (current assets – current liabilities). It is typified by a reduction in liquidity risk. Increasing the current ratio, whether by decreasing current liabilities or increasing current assets, minimizes the risk that the company will not be able to meet its obligations as they fall due. Thus, an increasing ratio of current to noncurrent assets
means that a company is forgoing the potentially higher returns on long-term assets in order to guard against short-term cash flow problems.
